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Retirement wealth inequality and retirement security are issues that the United States has been grappling with for years. Low-paid and minority workers are most likely to be unable to accumulate retirement savings over time. This Article spotlights Amazon, one of America’s largest employers and one that has very high employee turnover. To be vested in Amazon’s 401(k) matching contributions, an employee must be there for three years—a requirement that is not being met given the much quicker turnover in their low-paid, predominantly minority warehouse workforce.

Until now, there has not been discussion about the grossly unfair result of mixing high employee turnover and 401(k) plan vesting schedules. This Article shows that sizeable high-turnover companies are utilizing legal 401(k) plan vesting schedules to their own benefit with the effect of worsening retirement wealth inequality.

This Article argues two steps are necessary solutions to address this problem. The first argument aligns with President Biden’s order to governmental agencies to step up their data collection to quantify the inequities in the legal system. We need to collect more specific data on gender, race, and pay of those who terminate prior to vesting. This will allow us to assess the impact of vesting schedules on retirement plan inequality.

The Article then argues that megacompanies should be foreclosed from using vesting schedules in their retirement plans. They simply employ too many people, and many are in high-turnover businesses. It is against public and retirement security policy to allow high-turnover megacompanies to shortchange employees and take advantage of vesting schedule use in their 401(k) plans particularly when the goal of using vesting schedules—to retain employees—is not being met.

Something needs to be done to address the direct tension in retirement plan policy when employers that know they have high turnover use a vesting schedule. The Article sets forth various tests as alternatives to immediate vesting. Each method has the potential to incentivize companies to reduce churn. If a company does not want to be subject to a new test, then it could simply amend its plan to immediately vest everyone.

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Yale Law & Policy Review

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